Bitcoin payments could bring the internet to a standstill

The Bank of International Settlements just released their annual economic report, and the part that is getting the most attention is a 24-page article that discusses the viability and life of the crypto world.

That's based on a BIS calculation of what it would take for cryptocurrencies to process all the digital retail transactions now handled by national systems.

The BIS researchers pointed to said that virtual coins were too unstable, consumed too much energy and were subject to too much manipulation and fraud to achieve this ambitious goal.

The Bank of International Settlements, often referred to as the "central bank of central banks", is based in Basel and provides banking services to institutions such as the Federal Reserve and the European Central Bank.

"The associated communication volumes could bring the Internet to a halt", the BIS report said.

The BIS also said that underpinning of trust in each cryptocurrency is also fragile due to forking, a process whereby a subset of cryptocurrency holders coordinate on using a new version of the ledger and protocol, while others stick to the original one.

The report also takes shots at miners, noting that "delivering. hinges on a set of assumptions: that honest miners control the vast network of computing power, that users verify the history of all transactions and that the supply of the currency is predetermined by a protocol".

The report may also revive concerns that for all its ingenuity, blockchain transactions will get harder and harder to protect as it scales up. According to Reuters, earlier this year Agustin Carstens, its general manager, described Bitcoin as "a combination of a bubble, a Ponzi scheme and an environmental disaster". Today's cryptocurrencies become more cumbersome to use as the number of users increases, in contrast to conventional money, which works better the more people use it and trust it. These types of transactions are important for companies with large workforces overseas, and could make their payment systems faster and more efficient.

Sovereign money, Shin concludes, also has value because it is widely used - whereas Bitcoin et al are mainly traded for speculative purposes at the moment. "That's true whether it's a piece of paper with a face on it, or a digital token".

"Trust", it says, "can evaporate at any time because of the fragility of the decentralised consensus through which transactions are recorded". A collapse in trust can raise doubts on the finality of individual payments, which implies that the system will no longer be functional, resulting in a loss of the currency's value.

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